There is an old adage that says "never short (sell) a dull market". This market is rising on fumes in terms of volume and that was the scenario for the last two topping moves. On the left is the long term chart of the SP500. As can be readily seen on the chart, we are completing a long term bearish wedge that had appeared to end in May of 2011 with a truncated wave "E".The last several months have seen the index put in a intermediate bottom with a subsequent rally back to the May top. The indicators suggest that there is a possibility the index could break out and attempt a new high near 1600. The timing to complete the move higher could last the balance of 2012. The odds, however, seem to indicate that we will know the direction for the market by at least the "Ides of March". We still have mixed signals with the middle box showing a turn in the making and the lower box showing the long term indicator is still holding above the zero line and flat lining at the moment. So we are neutral to bearish for the time being.
The following charts should give you pause on jumping into to the rally like the saps on TV. Everyone who drives knows whats happening with the price of oil and as a result its derivative gasoline. Here's a chart showing the relationship of spikes in oil prices to the onset of recessions. We are watching the price of oil and gasoline rise as a result of the sword rattling by Iran in the Straits of Hormuz and the price of gasoline being seasonal will be largely effected by the changeover to the summer blends as well as any geopolitical inputs. We could see a double dip recession like the one shown for the early 80's.
The red line on the chart is the average price and the black bars are the range.
Now there is a mystery surrounding the real level of gasoline demand. If the economy is actually starting to get better then we should see more people driving to their jobs and more fuel being used to deliver the goods and services companies are producing. There doesn't seem to be any increase at all in gasoline sales and the fact that the price of gas is rising will not provide the lift to the economy, on the contrary, it will lead to less demand.
Chart via dshort.com
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| ZeroHedge article and chart |
Then there is the incessant government and media lying on the BLS reporting of unemployment numbers.
Sick of the BLS propaganda? Then do the following calculation: using BLS data, the US civilian non-institutional population was 242,269 in January, an increase of 1.7 million month over month: apply the long-term average labor force participation rate of 65.8% to this number , and you get 159.4 million: that is what the real labor force should be. The BLS reported one? 154.4 million: a tiny 5 million difference. Then add these people, who the BLS is purposefully ignoring yet who most certainly are in dire need of labor and/or a job, to the 12.758 million reported unemployed by the BLS and you get 17.776 million in real unemployed workers. What does this mean? That using just the BLS denominator in calculating the unemployed rate of 154.4 million, the real unemployment rate actually rose in January to 11.5%. Compare that with the BLS reported decline from 8.5% to 8.3%. It also means that the spread between the reported and implied unemployment rate just soared to a fresh 30 year high of 3.2%. And that is how with a calculator and just one minute of math, one strips away countless hours of BLS propaganda.
The world markets are being held captive by the Government policymakers and central bankers. The headwinds facing the market are not getting fixed but merely band aided. Sooner or later the market will begin to grasp the magnitude of the problems facing it, then fear will replace greed. Until then, please use caution in placing any large bets until the market shows its hand. Cash is a good thing at the moment.
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